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Did EMI and UMG Lie to Antitrust Investigators?

Did EMI and Universal Music Group lie to the Department of Justice in order to throw federal investigators off the scent during the antitrust investigation involving the major labels, MusicNet, and pressplay? According to a ruling issued last week, the evidence suggests they did.

This is the latest chapter in the Napster case. Yes, that Napster case.

Years after the original company went bankrupt and sold their name to the highest bidder, the Napster case continues to drag on. The record labels, you see, are still pressing their case against Hummer Winblad and Bertelsman for investing in Napster years ago.

The defendants, however, argue that the RIAA companies forfeited their copyright claims thanks to their coordinated and illegal effort to monopolize digital music distribution through MusicNet and pressplay, the ill-fated joint ventures set up by the major labels back in the days of the Napster revolution. The DoJ launched an antitrust investigation in 2001, but ultimately found no evidence of wrong-doing.

But were the antitrust investigators fed misleading information by the labels? Discrepancies have come to light in the Napster case, where the defendants are reviewing all the documents relating to the DoJ investigation.

The documents reveal that the major labels included "MFN" (most favored nation) clauses in all of their licenses with MusicNet and pressplay, resulting in a de facto coordination of terms. They also show that the labels used "independent consultants" and "side letters" to share information regarding licensing negotiations and coordinate their positions.

During the DoJ investigation, EMI and UMG apparently misled the investigators about these activities. In the words of Judge Patel: "[T]he documents provided by Hummer provide reasonable cause to believe that the statements in the [labels' report to DoJ] were deliberately misleading, if not completely false."

The judge has ordered UMG and EMI to hand over previously withheld documents relating to the DoJ investigation, overriding the attorney-client privilege because "the court ... finds reasonable cause to believe that the attorney's services were utilized in furtherance of the ongoing unlawful scheme." The labels have 30 days to comply. Stay tuned.